Fraudulent tax
schemes

By STATE SEN. CHIP PEARSON

Chip Pearson

As a state
Senator, I hear from my constituents on a daily basis, as they describe
the issues that matter to them most. One of the most common concerns I
hear these days is on the average citizen's growing tax burden. In 2007,
our hardworking citizens pay several different taxes - sales tax, property
tax, ad valorem tax, fuel tax and others. Currently, there is a great deal
of ongoing discussion under the Gold Dome about tax reform in our state.
In the meanwhile, one way for Georgia citizens to avoid higher taxes is to
avoid some of the most common tax schemes. These blatant scams affect
American taxpayers in numerous ways, whether it's defrauding them out of
their hardearned dollars or causing taxes to rise due to the loss of
federal revenues. Each year, the IRS identifies some of the most
ridiculous and harmful tax schemes, and I'd like to highlight some of
them this week.

Telephone Excise Tax Refund Abuses: In 2007, many
individual taxpayers requested large and apparently improper amounts for
the special telephone tax refund. In some cases, taxpayers requested a
refund of the entire amount of their phone bills, rather than just the
three-percent tax on long-distance and bundled service to which they are
entitled. Some tax preparers are helping their clients file these improper
requests.

Abusive Roth IRAs: Taxpayers should always be wary of
advisers who encourage them to shift under-valued property to Roth
Individual Retirement Arrangements (IRAs). In one variation, a promoter
has the taxpayer move under-valued common stock into a Roth IRA,
circumventing the annual maximum con- tribution limit and allowing
otherwise taxable income to go untaxed.

Phishing: This technique
is used by identity thieves to acquire personal financial data in order to
gain access to the financial accounts of unsuspecting consumers, run up
charges on their credit cards or apply for loans in their names. These
Internet-based criminals pose as representatives of a financial
institution - or sometimes the IRS itself - and send out fictitious e-mail
correspondence in an attempt to trick consumers into disclosing private
information. A typical email notifies a taxpayer of an outstanding refund
and urges the taxpayer to click on a hyperlink and visit an
officiallooking Web site. The Web site then solicits a social security and
credit card number. It is important to note the IRS does not use e-mail to
initiate contact with taxpayers about issues related to their accounts.

Disguised Corporate Ownership: Domestic shell corporations and
other entities are being formed and operated in certain states for the
purpose of disguising the ownership of the business or financial activity.
Once formed, these anonymous entities can be, and are being, used to
facilitate underreporting of income, non-filing of tax returns, listed
transactions, money laundering, financial crimes and possibly terrorist
financing. The IRS is working with state authorities to identify these
entities and to bring their owners into compliance.

Return
Preparer Fraud: Dishonest return preparers can cause many headaches for
taxpayers who fall victim to their schemes. Such preparers make their
money by skimming a portion of their clients' refunds and charging
inflated fees for return preparation services. They attract new clients by
promising large refunds. Some preparers promote filing fraudulent claims
for refunds on items such as fuel tax credits to recover taxes paid in
prior years. Taxpayers should choose carefully when hiring a tax preparer.
As the old saying goes, "If it sounds too good to be true, it probably
is."

Trust Misuse: For years, unscrupulous promoters have urged
taxpayers to transfer assets into trusts. They promise reduction of income
subject to tax, deductions for personal expenses and reduced estate or
gift taxes. However, some trusts don't deliver the promised tax benefits.
There are currently more than 150 active abusive trust investigations
underway and 49 injunctions have been obtained against promoters since
2001.

Abuse of Charitable Organizations and Deductions: The IRS
continues to observe the use of tax-exempt organizations to improperly
shield income or assets from taxation. This can occur when a taxpayer
moves assets or income to a tax-exempt supporting organization or
donor-advised fund but maintains control over the assets or income.
Contributions of non-cash assets continue to be an area of abuse,
especially with regard to overvaluation of contributed property. In
addition, the IRS is noticing the return of private tuition payments being
disguised as charitable contributions to religious organizations. In 2007,
the General Assembly passed legislation to eliminate this type of tax
scheme.

Form 843 Tax Abatement: This scam rests on faulty
interpretation of the Internal Revenue Code. It involves the filer
requesting abatement of previously assessed tax using Form 843. Many using
this scam have not previously filed tax returns and the tax they are
trying to have abated has been assessed by the IRS through the Substitute
for Return Program. The filer uses the Form 843 to list reasons for the
request.

Frivolous Arguments: Promoters have been known to make
the following outlandish claims: the 16th Amendment concerning
congressional power to lay and collect income taxes was never ratified;
wages are not income; filing a return and paying taxes are merely
voluntary; and being required to file Form 1040 violates the 5th Amendment
right against self-incrimination or the 4th Amendment right to privacy.
Don't believe these or other similar claims. These arguments are false
and have been thrown out of court. While taxpayers have the right to
contest their tax liabilities in court, no one has the right to disobey
the law.

As citizens, it's our responsibility to pay the taxes
we owe in a timely fashion. Our goal in the General Assembly is to ensure
that those taxes are as low as possible and spent wisely. Those who avoid
paying their fair share not only break the law, but they force the rest of
us to pay a higher share than we should. So, it is our duty to report
suspected tax fraud. You can do this by using IRS Form 3949-A, Information
Referral. Form 3949-A is available for download at www.irs.gov, or by mail
by calling (800) 829-3676. The completed form or a letter detailing the
alleged fraudulent activity should be addressed to the Internal Revenue
Service, Fresno, CA 93888.

Remember to contact me in my office on
the issues that are affecting you and your area.

We are a tax and accounting firm in Huntsville Alabama with a strong focus on helping small businesses reduce cost associated with taxes and to assist individual maximize their tax return. Some of the accounting and tax areas in which we are profficient includes, payroll taxes, quaterly and yearly reports, estimated tax, Late Filers, financial statements, income tax return and payroll processing and general bookkeeping. We are familiar with Peachtree, Quicken, CMS and Quickbook.